The reality of transfer payments

As we explored in a previous post, transfer payments are highest in America’s small towns, not its big metros. The same is true of government employment earnings. And the reverse is true for private sector employment earnings. Each contrary to conventional wisdom, which views small town America as the home of the self reliant, and big metro America as the center of big government America. Wrong!

The New York Times recently published two important article on transfer payments that are highly recommended. For both look at the data that go with the articles. The first entitled “Even Critics of Safety Net Increasingly Depend on It” is a terrific overview of who actually receives transfer payments, how at their current level they are unsustainable (requiring some combination of benefit cuts and tax increases) and the complicated politics of transfer payments. The article includes an interactive map – which I highly recommend you explore especially the Michigan data – detailing the proportion of personal income that comes from transfer payments for every county in the country. The interactive map can be found here.

The article describes the reality of transfer payments this way:

Almost half of all Americans lived in households that received government benefits in 2010, according to the Census Bureau. The share climbed from 37.7 percent in 1998 to 44.5 percent in 2006, before the recession, to 48.5 percent in 2010. The trend reflects the expansion of the safety net. When the earned-income credit was introduced in 1975, eligibility was limited to households making the current equivalent of up to $26,997. In 2010, it was available to families making up to $49,317. The maximum payout, meanwhile, quadrupled on an inflation-adjusted basis.

It also reflects the deterioration of the middle class. Chisago (a Minnesota county featured in the article) boomed and prospered for decades as working families packed new subdivisions along Interstate 35, which runs up the western edge of the county like a flagpole with its base set firmly in Minneapolis. But recent years have been leaner. Per capita income in Chisago excluding government aid fell 6 percent on an inflation-adjusted basis between 2000 and 2007. Over the next two years, it fell an additional 7 percent. Nationally, per capita income excluding government benefits fell by 3 percent over the same 10 years.

The second Times article summarizes new data from the the Center on Budget and Policy Priorities on who receives transfer payments. The bottom line: overwhelmingly white, middle class and older Americans. Most surprising to me is: “African-Americans, who make up 22 percent of the poor, receive 14 percent of government benefits, close to their 12 percent population share. White non-Hispanics, who make up 42 percent of the poor, receive 69 percent of government benefits – again, much closer to their 64 percent population share.” Once again spend some time looking at the data table that is part of the article.

Derek Melot the editor of Bridge explored the Times’ interactive map and wrote an insightful column on the geography of transfer payments in Michigan. Melot lists the proportion of income coming from transfer payments in some of Michigan’s northern counties compared to those in Michigan’s big metros. I’m sure it would surprise most the 40% or more in many counties Up North compared to 28% in Wayne and 31% in Genesee. All way too high, but hardly the urban poor in places like Detroit and Flint are taking all of our hard earned money story we tell ourselves over and over again.

The new reality as Melot writes is: “A trend receiving too little coverage in Michigan these days is the growing outlook gap between urbanized Michigan and rural Michigan. In a 21st century economy, job creation is dominated by urbanized areas. What happens to rural areas if jobs fade away? One answer is that rural areas get older — and as they get older, they get more dependent on federal benefit programs for the elderly.”

Lou Glazer is President and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy. Its work is funded by Michigan foundations.